What could Brexit mean for expat mortgages in 2017?

Mortgage & Finance News

Jan09

Since the public voted to leave the European Union back in June the country has been in a state flux. No one quite knows what will happen when the government triggers Article 50 later this year and embarks upon the formal process. The uncertainty Brexit has created has led to a softening of property prices but if you’re an expat living or working abroad, now could be the perfect time to dip your toes into the UK property market.

A great time to buy

Whilst it is true house price growth has slowed since Brexit, the change has not been as significant as first thought. In fact, according to Nationwide’s quarterly House Price Index report, growth ended 2016 at 4.5% - the same as in December 2015. London, however, did see growth below the UK average for the first time in eight years.

A spokesman for Nationwide says: “Like most forecasters, including the Bank of England, we expect the UK economy to slow modestly, which is likely to result in less robust labour market conditions and modestly slower house price growth.

“But we continue to think a small gain - around 2% - is more likely than a decline over 2017 as a whole, since low interest rates are expected to help underpin demand while a shortage of homes on the market will continue to provide support for house prices.”

As an expat looking to invest, it could still prove lucrative – people still need houses, demand currently outstrips supply and property has always been seen as a long term investment that will ride out any possible highs and lows. The Bank of England base rate is unlikely to increase any time soon and you can still secure some excellent expat buy-to-let mortgage deals.

A weaker pound means more bang for your buck

Brexit did lead to a fall in the financial markets which wasn’t so great for people moving out of the UK or companies exporting their goods and services. Products imported into the UK have also risen in price. However, a weakened pound means you do get more for your money when converting your overseas income into tangible property in the country. It effectively means you get a discounted property, which is no bad thing.

To give you an example, the pound dropped 20% against the dollar in October, bringing it to a 31-year low. If you are paid in dollars but purchased a property for £200,000 in the UK, you’d have effectively saved £40,000 on the price.

Alex Ewen, Head of Sales at Falbros, says: “The pound crashed hard against the dollar and euro in the wake of Brexit but for expats looking to convert foreign earnings into sterling mortgages this was no bad thing.

“The pound is likely to continue on a rollercoaster journey in 2017 as the Brexit debate continues with some experts predicting parity with the euro later in the year, others predicting a small recovery. Whilst that isn’t great for UK buyers, expats can enjoy greater return for their money.”

Increased choice of expat mortgage lenders

Increased regulation from the EU has led to lenders such as Natwest and Halifax pulling out of the expat market altogether. The Mortgage Credit Directive, introduced last March and regulating mortgage lending in member states, effectively reduced competition in the expat market. Not only did the directive affect EU members but it also impacted on expats globally looking to buy in the UK because it applies to anyone taking out a sterling mortgage in the UK whose income is in another currency. The compliance requirements are onerous and as a result some lenders have decided it’s not worth the investment.

Fewer lenders and less competition naturally means fewer deals. But with the UK voting to leave, the country will no longer be subject to such regulations. In fact, long term it could encourage competition, allowing for a wider range of expat mortgages to be made available.

Alex adds: “Sometimes, securing an expat mortgage requires lateral thinking and it’s not always the big lenders who are the best choice. I have secured hundreds of mortgages and built long-lasting relationships with many niche lenders.

“This will continue to be the case despite Brexit and we may even see an increase in lenders offering expat mortgages when the UK does finally exit the EU.”